40% tax on individuals in “gold-plated, Cadillac” health insurance plans is tax on groups of the chronically ill: Med-Vision

Oct 12 2009

Dan Ross, founder and president of Med-Vision, a Tampa-based medical consulting company, asserts that the Senate Finance Committee’s proposal to impose a 40 percent tax on individuals in “gold-plated, Cadillac” health insurance plans would be best described as a tax on groups of the chronically ill. With these “high-dollar” plans priced at $8000 or more for individuals and $21,000 or more for families annually, the proposed tax and other taxes on insurance companies are the latest attempt to raise $774 billion over 10 years to fund healthcare reform.

“Some in Washington believe ‘Cadillac’ plans have lower deductibles and co-payments, but high-dollar plans relate more to misery and sickness from chronic disease,” said Ross, who warns that the perception of taxing “the guy covered by the rich health plan” will backlash into a “circular firing squad.”

By targeting individuals in groups covering the highest number of sick, the tax will disproportionately affect those in plans offering retiree coverage, populations with older average ages, and residents of states with higher healthcare costs. Plans with lower deductibles and co-payments are producing lower aggregate cost, as evidenced by a national move to medical homes and employer-sponsored on-site health clinics with lower deductibles and co-payments.

Ross, who has 20 years experience in employee benefits, conducted an analysis of 200,000 plan members covered under multiple employer self-funded health plans. The two-year analysis looked at claims totaling $800 million. Among the findings:

• 85% of the group (170,000 members) accounted for $155 million or 19% of annual claims. This larger percentage averaged $456 per member.
• 15% of the group (30,000 members) accounted for the remaining $645 million or 81% of annual claims. This smaller percentage averaged $10,800 per member.

Med-Vision also points to the Centers for Disease Control and Prevention, which estimate that chronic disease accounts for 75 percent or $1.5 trillion of the national $2 trillion annual healthcare spending. Similarly, the Robert Wood Johnson Foundation published that caring for those with chronic disease accounts for 78 percent of health spending.